EUR 850.00 For Business Accounts Only

Morningstar | No Big Surprises in Siemens' Fiscal 2018; Shares Attractively Valued

Siemens' fiscal 2018 results were not a big surprise, as the full 12 months mirrored trends from the first nine months; however, indications on the outlook, particularly regarding the cycle, were taken more positively by the market. On an organic basis, orders and revenue were up 8% and 2%, respectively, in 2018 with the industrial (that is, excluding financial services) EBIT margin and earnings squarely in line with guidance. We expect to make changes to our forecasts following the full-year results but do not expect a material impact on our EUR 128 fair value estimate. We retain our narrow moat rating and find the shares attractively valued at current levels.

On the earnings call, management indicated that demand from short-cycle end markets still looked healthy, which we believe was well received by investors, with the stock up modestly relative to the local market. However, visibility on the short cycle is by nature low, something echoed by other capital goods companies we cover. For the sector, we have been modeling more organic modest growth in 2019 following two years of generally robust industrial growth since the trough in mid-2016. However, Siemens has exposure to some structural tailwinds from industrial automation (Industry 4.0) applications that will likely offset some of the cyclical moderation that we forecast.

In the fourth quarter, the divisions with structural tailwinds from industrial automation, namely digital factory and to a lesser extent process industries and drives, saw organic order growth up 17% and 1%, respectively, with the latter facing tough comparables. Healthineers and mobility also exited the year with good order growth, up 13% and 22%, respectively, with the former enjoying healthy U.S. demand while the latter benefited from particularly large orders. Gamesa orders grew 1%. Power and gas orders were up 13%, but underlying demand still looks weak, with a book/bill trending below 1.